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Horizon, Roc in $800m 'merger of equals'

Angela Macdonald-Smith

Roc Oil and Horizon Oil have struck a deal for an all-scrip merger to create a $800 million oil and gas player with assets across Asia and Australasia.

Horizon Oil shares have slumped after the companies announced their "merger of equals" on Tuesday morning. The shares have fallen 9.5 per cent to 33.5¢ since trading resumed, while Roc Oil shares are up 1.7 per cent at 46.25¢.

As foreshadowed in Street Talk , Roc will offer stock to take over Horizon in a deal the pair are describing as an "all-scrip merger of equals".

Under the terms announced on Tuesday, Horizon shareholders will receive 0.724 shares in Roc for each Horizon share they hold. Roc's chairman Mike Harding will be chairman of the merged group, while Horizon chief executive Brent Emmett will be managing director.

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Based on Roc's latest close at 45.5¢, the scrip offer values Horizon at about 32.9¢ per share, lower than the stock's last close of 37¢ last Wednesday before being halted from trade. Horizon's share price shot up 10.5 per cent that day after a late surge.

Current Roc chief executive Alan Linn will take the role of president of Roc Oil Malaysia until April 2015.

Both boards are unanimously supporting the merger. Roc is being advised by JB North & Co and Herbert Smith Freehills, while UBS and King & Wood Mallesons are advising Horizon.

Mr Harding said the proposed merger was "transformational" and would create growth that added value for investors.

"This transaction represents a unique and compelling opportunity to bring together two companies with highly complementary assets to create a new Asian-focused mid-cap E&P champion," Mr Harding said.

Diversification is key

Horizon chairman Fraser Ainsworth said the merger would allow all shareholders to retain exposure to the attractive assets of each company while providing greater diversification.

The merger terms "reflect our boards' mutual judgement that the relative market valuations are the appropriate basis to ensure both groups of shareholders have the appropriate level of equity ownership in the merged group," he said. Mr Ainsworth will be a non-executive director of the merged company.

Roc shareholders will own about 42 per cent of the merged company, and Horizon shareholders about 58 per cent.

The merged company would have proven and probable reserves of 36.9 million barrels of oil equivalent, of which 95 per cent would be higher-value liquids rather than gas. Its contingent resources would be 120.7 million boe.

Combined production is estimated at 5.5 million boe, from assets across China, Papua New Guinea, Malaysia, Myanmar, Australia and New Zealand. The companies' respective interests in China, in the Bohai Bay and Beibu Gulf, are the only ones they have in common.

The deal, to be structured as a scheme of arrangement, is subject to Horizon shareholder approval and an examination by an independent expert, which needs to find it is in the best interests of Horizon shareholders. It also requires the completion of a deal currently underway where Horizon is selling an interest in gas and condensates fields in PNG to Japan's Osaka Gas.